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For computation of long term capital gains, we are getting valuation done as on 1.4.2001 of a flat acquired by my father in 1999 in Chennai. It is being done by a registered valuer. For this purpose, the valuer has taken the guideline value as per the sub-registrar as on 1.4.2001. He has added 13% for the registration fee and stamp duty applicable as on 1.4.2001 in Chennai. I wanted your advice on whether the 13% can be added to the guideline value of land to arrive at the cost of land.
In case land or building has been held by you for more than 24 months, any profit made on sale of such property is treated as long term capital gains to be computed in prescribed manner. For computing long term capital gains on sale of your property you have to reduce the indexed cost from the net sale consideration received. The indexed cost of an asset is computed by applying the cost inflation index, announced for each year by the central government, to your cost of acquisition of such asset.
In case the asset being sold was bought or acquired before 1st April 2001, the income tax laws allow you to adopt the fair market value of the property as on 1st April 2001. The income tax laws further provide that the fair market value as on 1st April 2001 cannot be higher than the stamp duty valuation of the property as on that date. Stamp duty value is also referred to as circle rate or guidelines value in some parts of India.
Since the tax laws clearly provide that the fair market value as on 1st April 2001, to be adopted as cost of acquisition for assets acquired prior to that date, cannot be more than the stamp duty value, so even if the valuer gives you the valuation report with guidelines value as added by 13% of stamp duty and registration charges, you will be able to take the guideline value only as your cost of acquisition for computing long term capital gains.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.